The Different Types Of Procurement You Should Know About

Posted on Mar 30, 2023 at 11:03 PM

We all know that the term “types of procurement” is just the traditional buying and selling process, i.e. the sale of services or products (the seller) to another person (the buyer). But the reality of its meaning is not limited to that, but rather completely different, especially when the type of procurement is within the so-called supply chains.

Today, the types of procurement in any company are an essential cornerstone to success. If the company needs to obtain the raw materials necessary for its work, how will it be accomplished?! In sum, companies' use of procurement in their work is a primary requirement, not a secondary one. For this reason, modern management pays particular attention to managing types of procurement.

Our article for today will highlight the term procurement and its importance, the main types of procurement, and the stages of the procurement process.

What is the meaning of the term "types of procurement", and what is its importance?

Types of procurement mean a set of activities and actions companies undertake to obtain goods and services. However, the procurement process is pervasive and includes several stages requiring careful planning, such as communication, negotiation, etc.  However, some companies consider the procurement process merely issuing procedures and decisions to purchase goods only.

It is worth noting that companies may play many roles in the procurement process, for example, their role as a seller or buyer, or an interchangeable role, i.e. giving a commodity and taking something in exchange. Therefore, whatever the companies' work, planning to obtain the finest and better things and raw materials than competitors' commodities at reasonable prices is vital. Likewise, effectively applying the policy or system types of procurement is necessary for its work.

Procurement occupies an important place in the work of companies. Among the reasons are:

• Assists the supply chain manager in sourcing or securing reliable suppliers who provide supplies at competitive prices and appropriate quality.
• Concerned with follow-up the movement and changes of the market and keeping pace with them very quickly. 
• Assists employees in understanding the types of supply chains.
• Assists in managing procurement risks.
• Business can only be completed with various types of procurement, such as goods, services, or raw resources.

In light of the above, companies must be familiar with all types of procurement, as it is indispensable for their work. This is what we will discuss in our next paragraph.

What are the main types of procurement?

To better manage purchases, you must know the difference between the varieties and types of procurement. Knowing the difference between them depends on the procurement system, direct or indirect department, or the nature and types of procurement of goods or services.

First: Depending on the procurement system:

•  Direct Procurement:

Direct procurement is the company's purchasing goods used in its business's core operations and eventually making up its product. The parties that operate according to direct procurement are the employees of the companies and the suppliers contracted with the company.

Here are examples of direct-type procurement: raw materials for production, machinery and equipment, items of machinery, and ready-made products to sell at a higher price and increase sales.

Remember, Direct procurement significantly impacts the company's profit, performance, and sales. 

•  Indirect Procurement:

The type of indirect procurement refers to the purchases that do not bring any direct profit to the companies but are necessary for daily operations, whether in projects or companies. Among them, we mention the purchase of furniture and office supplies, the creation of e-marketing campaigns, the purchase of consultations, or the maintenance of devices and equipment.

Indirect type procurement in small or emerging companies is the job of office managers. In larger companies, it is a facility management function.

Second: Depending on the nature of procurement:

• Goods Procurement:

Goods procurement broadly refers to the procurement of physical items, whether direct or indirect, that the Company may need, in addition to software subscriptions.

For the procurement of the goods in your company to be successful, your supply chains must be more reliable. Here are some examples of purchasing goods and merchandise: primary raw materials, office supplies, hardware, or machinery.

• Service Procurement:

This type of Procurement refers to All people-based services procured in various paid services. For example, it is hiring temporary sales staff, buying outside consulting, signing short-term contracts with freelancers, or renting software and applications for one year.

The services Procurement includes direct and indirect Procurement. Remember to select the right people to perform the tasks for successful service procurement.

The three Elements of Procurement:

Procurement has three elements: personnel, process, and documents or paperwork. Below we will briefly explain each of them:

1- People:

There are two types of people: management personnel who can place an order to initiate the procurement process and a supplier responsible for selling goods or services to the company.

Remember that the supplier or seller who gives you a discount at the right price, time, and high quality is the best supplier to supply the goods.

2- Process:

Represents the actual implementation of the procurement process between the supplier and the company. It constitutes the main success element for the development and advancement of the company. The procurement process aims for a high-quality supply system, competitive prices, and appropriate timing.

If the procurement process is disorganised or fails, it may cause serious harm to the company. For example, buying expensive machines without needing them or without studying their economic feasibility accelerates the bankruptcy of some companies.

3- Documents and paperwork:

The documents include all paper and electronic contracts between the two parties to the procurement process, i.e. both the buyer and the seller or the company and the supplier). Establishing warehouses and stores to place documents and invoices for purchases and sales within your company is essential to ensure that all legal or governmental matters are handled.

Moreover, these contracts can be used to evaluate suppliers' procurement performance and avoid future mistakes.

Stages of Procurement:

To create a successful procurement plan, the sourcing stage can be divided into three stages, the sourcing stage, the purchasing stage, and the payment stage:

• Sourcing Stage:

It is the first procurement phase. Here, the company determines a list of the materials it needs and may use professional suppliers to evaluate this list.

• Purchasing Stage:

It is the middle stage in the procurement phase. It means communicating with suppliers and negotiating with them to choose the best supplier for the company, receiving purchases of services or goods and commodities and inspecting them to ensure that they conform to the required specifications and are free from defects.

• Payment Stage:

This stage is concerned with calculating the general invoice due from the company and paying it to suppliers after verifying all the goods received. And it would be best if you remembered that at this stage, keep a copy of all purchase invoices, contracts, and documents you sign.

In Conclusion,

Undoubtedly, you now understand how crucial corporate procurement management is. However, we have to point out that managing types of procurement cannot be fully learned from just one article. Therefore, in turn, we advise you to attend Procurement Courses in Dubai to master the procurement process professionally and to get acquainted with the types of procurement closely.